Co-owners' service tax liability on rental income: individual assessment with separate slab exemptions permitted, not collective pooling

Whether co-owners of undivided commercial property must be assessed collectively or individually for service tax on rental receipts is examined by reference to the pre-negative list definition of renting of immovable property service and the statutory meaning of "person" under the General Clauses Act. The analysis underscores that joint or co-ownership does not ipso facto create a collective interest; absent evidence of collective management or common interest, each co-owner acts on self-interest and is assessable in respect of his share. Consequently, co-owners are entitled to separate assessment and may claim slab exemptions individually.

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Issues: Whether co-owners of an undivided commercial property given on lease constitute an "association of persons" / "association or body of individuals" such that they must be assessed collectively for Service Tax on the pooled rent, or whether each co-owner is entitled to individual assessment and to claim slab/threshold exemption on his respective share.

Analysis: The statutory definitions adopt the term "person" to include an association of persons, but neither the Finance Act nor related provisions define what constitutes an "association of persons". Precedent establishes that an association of persons requires two or more individuals to voluntarily join for a common purpose, particularly to produce income, and that volition and joint management are essential ingredients. Mere joint or undivided ownership, or execution of a single lease deed, does not by itself establish an association of persons where individual undivided shares are ascertainable, receipts are credited separately, and there is no joint management or common purpose demonstrated. The facts show identifiable UDS shares, separate receipt of rent by each co-owner, absence of pooled receipts or collective management, and no evidence of a conscious agreement to operate as a joint economic unit. Prior tribunal and High Court decisions apply the same tests and support individual assessment in such circumstances.

Conclusion: Co-owners of the undivided commercial properties are not an "association of persons" for Service Tax assessment; each co-owner is entitled to be assessed individually in respect of his share of rental income and may avail applicable slab/threshold exemption on an individual basis. The impugned orders are set aside and the appeals are allowed.

Ratio Decidendi: Where co-ownership lacks voluntary uniting for a common economic purpose and there is no joint management or pooled receipts, co-owners of undivided property cannot be treated as an "association of persons" and must be assessed individually for renting-of-immovable-property service.

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